Managing rent arrears
Landlords should aim to be flexible in their approach to helping tenants facing financial difficulties, especially during the coronavirus outbreak. Where rent arrears arise, dialogue and negotiation between landlord and tenant is required, and engaging with tenants at the earliest opportunity is essential to managing the situation to avoid the need for eviction action.
When a tenant falls in to arrears, the landlord, or their letting agent, should contact the tenant as quickly as possible to discuss the issue and offer support. It is helpful for the landlord to provide information to the tenant on the financial support that may be available to them as soon as arrears occur.
As we move through and out of the coronavirus outbreak, tenants may face complex and evolving issues including sudden loss of employment, changing work patterns and reduced income and unexpected expense. When any changes occur in a tenant’s circumstances, early discussion can help both parties to agree a plan to manage any arrears that have already occurred and to prevent further arrears accumulating.
Landlords should consider what steps they can take to help the tenant manage arrears and move back into the payment of rent. This could include:
- signposting tenants to the private rented sector (PRS) tenant resource. which has been published by Scottish Government for all PRS tenants and includes relevant information and advice about financial support available for tenants
- making a temporary agreement not to seek possession action whilst the tenant seeks support e.g. through an application for Universal Credit
- considering whether all or part of the arrears could be written off
- agreeing that payment of arrears can be deferred until a later date
- requesting a mortgage holiday from their lender or applying for a PRS Landlord Covid Loan Fund loan from the Scottish Government to cover the period the tenant is unable to pay (full) rent to allow time to work with the tenant on managing arrears
- if a tenant is on Universal Credit, a landlord can apply for a Managed Payment to Landlord (MPL), using the new Apply for a Direct Rent Payment online service to request direct payments of rent or rent arrears (or both)
Adjustment in payment arrangements that may help a tenant in the short-term could include taking payment in a way that reflects the tenant’s circumstance such as moving to:
- more frequent/smaller payments
- partial payments of rent with agreed dates for the short-fall to be made up
- cash/cheque rather than direct transfer
Tenants may be struggling with financial problems during the coronavirus crisis and as a consequence, they may ask their landlords for a temporary change in the level of rent or the arrangements for payment. Landlords should be willing to consider such requests from the tenant.
Making temporary changes to terms of payment can help to sustain that tenancy by providing breathing space for tenants facing unexpected changes in their financial circumstances as a result of the coronavirus outbreak. Tenants may be facing a loss or reduction of income for the first time and will be unfamiliar with the support available and the processes they are required to access.
Where landlords are willing to support a tenant through a reduction in rent or change in the terms of payment it is essential that both parties understand the details of the change – i.e. partial reduction in rent, rent holiday, adjustment to payment arrangement – and the timescale during which the change will be in place. It is strongly recommended that such agreements are confirmed in writing.
Effective signposting by the landlord can be really helpful to tenants particularly where they may not have faced financial difficulties that impact on their ability to pay rent before. Landlords, or their agent, are in a unique position to help as they have an existing relationship with the tenant and early contact may prevent more acute problems developing in the future.
The private rented sector (PRS) tenant resource, has been produced as a comprehensive guide to support and advice for those living in the PRS during the COVID-19 pandemic. It is a collaboration between Public Health Scotland, Citizens Advice Scotland, Shelter Scotland and Scottish Government. And it would help landlords meet the terms of the pre-action requirement related to the provision of information. For example, it signposts tenants to:
- Universal Credit, which can include a housing element, which helps towards qualifying housing costs, including rent. This element replaces what was known as “housing benefit”. Supportive action to signpost can help prevent a delay in the payment of Universal Credit that can result in rent arrears building up
- The Scottish Welfare Fund helps families and people in Scotland who are on low incomes through Crisis Grants and Community Care Grants. These grants, though they do not cover rent payments, can be given to cover the costs of an emergency, or your circumstances have changed, eg. leaving care
- Tenants who get Housing Benefit or Universal Credit, but still can't afford their housing costs, may be eligible for a Discretionary Housing Payment
- The Scottish Government introduced a Tenant Hardship Loan Fund as another option for tenants struggling with rent payments due to the pandemic..
- Agencies that can provide money advice and welfare benefit checks and other financial support information. This includes advice from specialist providers such as Shelter Scotland, local Citizens Advice Bureaux and Money Advice Service
- Scotland’s Financial Health Service Advice offers a range of scenarios that might affect a person’s income, with helpful links to services by council area
The point at which a landlord takes the decision to seek repossession of a property will vary between landlords and circumstances. However, the basic principle that underpins the approaches set out in this guidance is that landlords, and tenants must do all that they can to resolve the arrears before landlords take action to evict.
Where it has not been possible to agree a reasonable repayment plan where all, or some, of the arrears are related to the Coronavirus pandemic, but the tenant can afford future rent payments, the landlord or tenant should approach their local authority housing department to see what further support is available to remain in the tenancy. This may include an award from the Tenant Grant Fund to repay some, or all, of the arrears to allow the tenancy to be sustained.
Under the Bankruptcy (Scotland) Act 2016 (as amended) (“the 2016 Act”), a landlord cannot generally recover rent arrears through court action once a tenant has been sequestrated. Diligence and sequestration are legal processes for the recovery of unpaid or overdue debts. This is an Introduction to sequestration, in case of interest.
The decision around whether to stop eviction proceedings that are ongoing when sequestration proceedings begin is a matter for the landlord. Landlords should be aware, however, that payment of arrears to a landlord by an insolvent debtor may run the risk that the courts would find this an unfair preference to one creditor over all creditors under section 99 of the 2016 Act. As such other creditors could challenge the payment of arrears.
In cases where a tenant is sequestrated before the landlord starts eviction proceedings, the landlord should consider not taking, or threatening, action to evict if the arrears are not paid. Attempting to collect rent arrears in this way could lead to challenge by other creditors, also a sheriff might not consider eviction reasonable in these circumstances.
Landlords can seek to recover as much as possible of the arrears through the sequestration process and write off the remainder of the arrears at the point of sequestration, treating this as a debt no longer due. Whilst rent is technically still due to the landlord, legally the debt is irrecoverable. Nonetheless, it is still possible for the landlord to seek recovery of the property on the basis of rent arrears, including the period during which the rent was not paid prior to the sequestration. The landlord should follow the pre-action requirements prior to commencing eviction proceedings.
Where a court sequestrates a tenant after court proceedings to repossess a property have begun the landlord should have already met the pre-action requirements.
The effect of bankruptcy on non-payment of rent as a ground for eviction
Separate to the issue of rent arrears, the landlord would still be entitled to pursue recovery of their property itself on the basis of the tenant’s failure to comply with their obligations in terms of rent payments. Again, separate to the fact that the landlord cannot pursue rent arrears due pre-sequestration, the rent still remained lawfully due and this non-payment could be a basis upon which to seek eviction. In addition, any non-payment post-dating the sequestration award would be relevant to the ground of recovery.
The pre-action requirements will form part of the process for the landlord to follow before applying for an eviction notice, regardless of when the rent arrears were incurred.
Where a court sequestrates a tenant after proceedings to repossess a property have begun, and if the landlord wishes to continue to pursue eviction action, the decision around whether eviction is reasonable is one for the Tribunal.
Citizens Advice Bureaux also covers debt advice, which is a complex area, and an overview can be found at What options are there for dealing with debt?